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Leadership Shake-Up Reflects United’s Troubles

Submitted by members on Fri, 09/11/2015 - 05:10

By JAD MOUAWAD

The shotgun marriage between Continental Airlines and United Airlines in 2010 showed much promise, but it quickly resulted in lackluster operational performance, tense labor relations and mounting frustrations for passengers.

But while these troubles at United have led some analysts and investors to call for changes at the top, it took a federal corruption investigation for a major reshuffling of the company’s senior ranks.

Jeff Smisek, the airline’s chairman, chief executive and president since the merger, resigned on Tuesday in the wake of a continuing investigation into corruption charges related to the company’s dealings with the Port Authority of New York and New Jersey.

Mr. Smisek’s sudden departure took many by surprise, including the person now tasked with changing the company’s culture and fixing its myriad problems. United’s new chief executive, Oscar Munoz, acknowledged as much in hastily arranged conference calls with Wall Street analysts.

Mr. Munoz, who was until now the president and chief operating officer at the CSX Corporation, a major rail freight company, said his priority would be to talk to employees and emphasize the “value and service” that the airline provides its customers. Mr. Munoz has been on United’s board since 2010 and before that was a Continental board member since 2004.

“It’s been a rough integration and there have been lots of complex issues to work through,” Mr. Munoz said. “It is certainly a new chapter for United.”

Two other senior United executives also resigned on Tuesday: Nene Foxhall, United’s executive vice president for communications and government affairs, and Mark R. Anderson, the senior vice president for corporate and government affairs.

As part of the corporate housecleaning, the company’s board also named a new nonexecutive chairman, Henry L. Meyer III, an independent director.

The sudden downfall of Mr. Smisek put an end to a jagged tenure at the top. In 2010, Mr. Smisek, then chief executive of Continental, orchestrated a rapid merger with United Airlines. The plan was that the combination, in creating the world’s biggest airline at the time, would lead to billions in additional revenue and cost savings, better labor relations and expanded travel options for passengers.

Executives from Continental would bring their focus on service and operational performance to Chicago, where the larger carrier United was based. It promised an unparalleled global network, with eight major hubs and 5,500 daily flights serving nearly 400 destinations.

But things did not work out that way. On-time performance has lagged while integration issues between the two carriers took far longer to fix than initially envisaged. As a reflection of the company’s troubles, the airline’s financial performance has also been uneven. It includes a loss of $723 million in 2012 and $609 million in the first quarter of 2014, a period when other carriers were profitable. More recently, even as the drop in oil prices has helped improve the company’s fortunes, with record second-quarter net income of $1.3 billion, the company’s shares have lagged rivals like Delta.

Problems remain. In June and July, the company grounded flights because of a computer problem.

Underscoring the tense internal relations, one group of employees representing United flight attendants said it welcomed the change in leadership. “We believe a fresh perspective will be healthy for United Airlines in all areas, especially where labor relations languished under previous leadership,” said Sara Nelson, the president of the Association of Flight Attendants-CWA.

United said Mr. Smisek had agreed to “cooperate fully” with the company’s investigation.

As part of the agreement to step down, United said Mr. Smisek would receive a lump sum of nearly $4.9 million in cash and would be eligible for a variety of other payments tied to the company’s performance plans, as well as about 60,000 shares, currently worth $3.4 million. But United said it could terminate the deal and require Mr. Smisek to repay some of his severance pay and benefits if convicted or if he pleads guilty to any felony or crime stemming from the investigation.